From start-up to scale-up: The biggest challenges

All too often we read and write about great British brands and the millions of pounds they generate, the growing armies they employ, and how fabulously successful they are.

What you often don’t get from those articles are the real stories of the toil and trouble they faced in building those brands. Not all successful business owners like to talk about how close they came to seeing their dreams die and their businesses go bust.

To slightly misquote Shakespeare though, the course of true success never did run smooth, which is why we gathered some of the Startups Awards’ former winners for a dinner discussion to share their stories of passion, pleasure and pain.

Among our guests were the entrepreneurs behind last year’s Simply Business Startups Business of the Year Beer52, £42.8m turnover online furniture business Made.com, and Joe & Seph’s, the gourmet popcorn company listed in Harrods, Selfridges, and Waitrose.

We also had Brett Akker who sold car sharing business Streetcar to US giant Zipcar before starting storage company LOVESPACE with Steve Folwell. The pair were recipients of the Crowdfunded Business of the Year award in 2014.

And completing the group below were founder of Chemist Direct Mitesh Soma, winner of 2008’s Retailer of the Year category plus Matt McNeill, who started 2007’s Innovative Business of the Year Sign-up.to before exiting last year. To read their full profiles click here.

Our first talking point saw our entrepreneurs divulge the details of the challenges inherent in transforming a business from start-up to scale-up:

What are the biggest challenges and fears during the first three years of a growing start-up?

Julien Callede, co-founder, Made.com:

“One of the biggest worries in starting a business is that you might never get any customers – we were lucky enough to get traction very quickly but then we had the issue of almost scaling too fast. We were worried about delivering the right customer experience.

“The three of us [the founders] had never managed a company before – and we were growing to 20, 60, 100 people – you know you’re growing fast and doing well but you worry how you’ll manage a team of that size.

“You also worry about whether your systems work, whether your delivery company will hold up – and be able to cope with volumes doubling month on month. We went through tough times and found that sometimes you have to reset your business plan and decide to scale a bit slower to get the proper processes in place and then start pushing growing hard again.”

Steve Folwell, co-founder, LOVESPACE:

“Balancing supply and demand is so difficult. We switched marketing off for a whole month last year for very similar reasons. In March last year we gained about 120 customers and then we had the same again in May in a day. We grew to 30 times the size in two months. We had five or six employees at the time and we did it. We survived but I’d never be able to do it again.”

Was the challenge building the infrastructure around you quickly?

“It was hours in the day – and it was a money issue. We couldn’t hire quickly enough and we were raising on Crowdcube. We timed our raise to bring money in before we needed it but the demand came in really quickly, about a month before we were expecting and we were a little slow in raising.

“So there was a two month hiatus between the two and we couldn’t bring anyone in. Then we had three people join at one point last summer and we sat them down and said ‘we can’t tell you anything, we can’t train you, you’ve just got to pick up the phones when people ring – just tell them everything’s OK’. Only one lasted the morning, literally.

“It’s a seasonal business and we were also putting money behind marketing (because we were raising), which had suddenly paid off. We kept focused on looking after the customers and got through it, but it was tough.”

Struggling to meet payroll

Brett Akker, co-founder, LOVESPACE and Streetcar:

“In our first three years at Streetcar we raised a total of £200,000 so cash was our big worry. Yes we had the operational worries but in the early days it was very much a case of whether this business is going to survive or not.

“When we first launched we charged at the end of the month so we had this massive dip in the middle of the month, which meant that meeting payroll, more months than not, was a worry. We weren’t using factoring so it was just a cashflow issue, but we made it through.”

Matt McNeil, founder, Sign-Up.to:

“Appearing serene on the surface to hide what’s going on underneath isn’t just a public issue – it’s important internally too. Your employees need to feel there’s a stable base.

“While plenty of people want to start businesses lots of people are terrified of doing it – and for employees they want to know that their pay cheque is definitely coming. The last thing they want to hear is that the boss is having to dip into his pockets for payroll, even though I’ve been there myself.”

Brett Akker, co-founder, LOVESPACE and Streetcar:

“We always said the one thing you need to make sure of is that payroll goes out on time every month.”

Matt McNeil, founder, Sign-Up.to:

“I always paid the payroll and the rent – you don’t want someone to say ‘why haven’t we paid the rent this month’.

“We had a visit from HMRC. They realised we’d gone up a lot in value but didn’t understand what we did. So I sat them down and showed them our systems – and they asked us ‘can you show us your filing?’. The day before I’d had my team do the filing, thankfully, so I said sure – have a look in this cupboard and that was that.”

Maintaining customer service levels as demand rockets

James Brown, co-founder, Beer52.com:

“There’s a team of five of us, the core co-founding team but we’ve also got a fulfilment warehouse. The biggest challenge we’ve had scaling up is finding the right partners to grow with.

“As a start-up business you can’t easily get credit from the banks so it’s a frustration not being able to meet demand. We look to external investors who can add value and support our ambitious plans for growth.

“Before we’ve scaled up, we kind of scaled things down to improve systems, restructuring the team, and changed the fulfilment warehouse to prepare for fast-growth.

“We’ve focused on improving customer service and delivery times as well as taking on extra staff at peaks, whereas we used to run a big marketing campaign on sites like Groupon or Facebook, you’d see huge spikes and have 5,000 people expecting great service with only two or three people working 20 hours a day, now we’ve got the resources to handle peaks and continue providing the best customer service and quick response times.

“You grow fast and you’re constantly trying to maintain quality, we’ve got a great team and amazing support network that helps us stay at the top of our game.”

Adam Sopher, co-founder, Joe & Seph’s:

“The one challenge I’d add is that for us, on a day-to-day basis, you always get nervous when you add a new stockist. The product goes on the shelf at a certain price point, and the question is will a consumer purchase at that price, enjoy the product and buy another. It’s the risk and uncertainty of price points when you get a new stockist. You might close a new order and it’s fantastic but will they go back and reorder. I never really celebrate a listing, I celebrate the reorder and relisting.”

Mitesh Soma, founder, Chemist Direct:

“I remember sitting through the Startups Awards and other awards schemes we’ve won and sort of keeping a tracker on what’s going on back at base.

“When I was at the Startups Awards I remember we had a newly recruited team member as we were trying to grow all while going through some operational issues. We were so focused on growth we weren’t really fixing the key infrastructure issues. We were putting more people and hours to it but it was causing panic.

“We were trying to be cool at the events but really there was a lot of panic. We ultimately had to calm things down and scale back. Once we’d fixed the core problems things got a lot smoother.”  

Views were expressed at the Startups Awards Winners’ Dinner held at exclusive London restaurant Avenue.

The Startups Awards is sponsored by Simply Business, the UK’s largest online insurance broker, with award categories sponsored by haysmacintyre, Big Red Cloud, .uk, and Experian.

Think you’ve got what it takes to be a winner at the Startups Awards 2015? Enter here.